Effect of New Illinois Child Support Law on Business Owners

Illinois passed a new child support law that became effective on July 1, 2017. The new child support law makes it simple to calculate child support for a traditional employee since the child support obligation is based on income. The amount of child support is based on net income after certain expenses are deducted from income.

However, the analysis is much more difficult for paying parents who own their own business. Any parent who is obligated to pay child support who has a business interest as a sole proprietor, partner, member in an LLC or shareholder in a corporation must calculate expenses to arrive at income. However, some of the expenses that business owners claim may be considered countable income for child support purposes while simultaneously being counted as tax deductions on tax returns.

Business Expenses

Many expenses such as vehicle use, cell phone expenses and other personal expenses are traditionally paid out of a business account for tax purposes and are tax-deductible. However, payments for these expenses are often countable as income for tax and child support purposes.

New Law Language

The new Illinois child support law defines business income as the gross receipts of the business minus certain expenses. The expenses that are deducted from the gross receipts are those that are “ordinary and necessary” in the course of the business and that are necessary to carry out the function of the business. However, the “ordinary and necessary” definition is not spelled out in the new law.

Different types of businesses and industries have different mechanisms in place to determine important expense. Some businesses may consider certain expenses necessary while others do not. The businesses may find these expenses necessary in one year but not the next.

Certain Types of Income

The new law does state that certain types of business expenses can be considered as income, such as using a company car, a housing allowance, free housing or housing allowance. Furthermore, the new law states that expenses that are countable as income are those that are significant in amount and that serve to reduce an obligated party’s personal expenses.

Tax Purposes vs. Child Support Purposes

The new Illinois child support law and the federal tax laws are often at odds with each other. Businesses owners may try to increase expenses for tax purposes so that they owe less taxes. However, if some of these expenses are equated to income for child support purposes, business owners may try to reduce these expenses. For example, a business owner may try to accelerate depreciation or claim excessive business expenses on their tax return, but these expenses may not be properly factored in for child support purposes. Not all expenses that are included in a tax return should be factored in for child support. The new Illinois law permits the court to determine that accelerated depreciation or excessive business expenses should be excluded when determining the business owner’s income.

Child Support Amount

The business owner’s income is then compared to the new child support tables. When determining the business owner’s income, the tax amount that he or she pays can be used instead of the rate of a normal employee.

Contact an Illinois Family Law Lawyer for Assistance with Your Child Support Order

If you are a business owner who wants to understand how child support is calculated on you, it is important to contact an experienced Illinois family law lawyer who is knowledgeable about businesses. You may wish to discuss how certain business expenses may be considered personal income and how they may impact the amount of support that you are obligated to pay.

If you are a parent who is entitled to receive child support on behalf of your children, it is also important that you seek legal advice from a lawyer familiar with the new Illinois child support law and guidelines. He or she can explain which types of business expenses may be considered in determining the paying spouse’s obligation to child support. Additionally, we can identify documents that you should gather to support your claim and explain which type of evidence that we will need to present to the court to demonstrate the business owner’s actual income and obligation regarding child support.

Because the child support law is new, it has not been litigated under often and appeals have been sparse. There is likely room for further disagreement and interpretation by the courts, so it is important to have a strong legal advocate on your side.

Provided by HG.org

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.
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